CQS - Anti-money laundering
CQS supporters
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Course author
This training course and assessment has been
prepared by Emma Oettinger, former Law
Society anti-money laundering policy officer.
The Law Society would like to thank the
members of the Conveyancing and Land Law
Committee who kindly volunteered to review
the content of this training and assessment.
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1. The legal context
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Why is anti-money laundering important for law firms?
Solicitors provide an important service to the community by providing legal advice,
conveying properties and conducting a wide range of commercial transactions.
Unfortunately not all clients who seek to use those services are legitimate.
It is estimated that £15 billion is laundered through the UK every year. Criminals will often
use businesses and companies as a front to help generate or launder the proceeds of their
crime. They will also purchase properties and other assets with their criminal funds.
Solicitors need to take care to ensure that their services are not used to assist criminals in
these activities.
If you do not take adequate precautions and your firm is used by a money launderer, you
risk the following:
•criminal sanctions;
•disciplinary action
from regulatory bodies;
•reputational damage;
•higher PII premiums;
•civil claims;
•loss of fees;
•loss of employment.
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What is the legislative framework?
Click each box to find out more.
Money Laundering
Regulations 2007
Proceeds of Crime Act
2002
Sanctions regimes
The Money Laundering Regulations
2007 (the 'Regulations') require you to:
•
•
carry out client due diligence, so
that you know who you are dealing
with; and
conduct ongoing monitoring, so
that you know what you are being
asked to do and can spot warning
signs of money laundering.
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What is the legislative framework?
Click each box to find out more.
Money Laundering
Regulations 2007
Proceeds of Crime Act
2002
Sanctions regimes
The Proceeds of Crime Act 2002 (POCA) contains the principal money laundering offences
and defences. The principal money laundering offences are:
•s.327 - concealing, disguising, converting or transferring criminal property;
•s.328 - entering into a money laundering arrangement;
•s.329 - acquiring, using or possessing criminal property;
where you know or suspect that the retainer involved criminal property.
POCA also contains an offence of failing to tell your firm’s Money Laundering Reporting
Officer (MLRO) that you know or suspect (or had reasonable grounds for knowing or
suspecting) that money laundering is occurring.
You don’t have to handle the money or the property in order to commit this offence and
the person engaged in the money laundering does not have to be your client - it can be the
other side or any other person.
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What is the legislative framework?
Click each box to find out more.
Money Laundering
Regulations 2007
Proceeds of Crime Act
2002
Sanctions regimes
In addition to being alert to money laundering risks, you also need to be aware of the risks
of breaching financial sanctions.
Financial sanctions are issued by HM Treasury and prevent the use of all economic
resources by or for the benefit of a designated individual, either directly or indirectly,
without a licence. This will include purchasing or selling a property on their behalf.
Currently sanctions apply to people involved in terrorist financing and to designated
individuals connected to jurisdictions such as Iran, Syria, and Zimbabwe. It is not only
foreign nationals who can be subject to sanctions, a number of UK nationals also appear on
the sanctions list.
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What is money laundering?
Click each box to find out more.
What is money
laundering?
What is criminal
property?
Money laundering means possessing or dealing with existing criminal property in any way,
including entering into an arrangement to let anyone else do so.
Attempted mortgage fraud is not money laundering as there is no existing criminal property, but
once the mortgage obtained fraudulently has been drawn down into the firm’s account, money
laundering will become an issue for the firm.
A transaction does not have to make a profit
for it to be money laundering. Criminals are
not entitled to any of the proceeds of their
crime, so even if they can retain part of the
money or obtain an asset, such as a house,
in order to create more criminal funds, they
have come out on top.
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What is money laundering?
Click each box to find out more.
What is money
laundering?
What is criminal
property?
Criminal property is defined in section 340 of POCA as: any property which is, or represents a
person’s benefit from criminal conduct, where the alleged offender knows or suspects that it is
such.
Criminal conduct is all criminal conduct, and will generally include criminal conduct committed
overseas.
Property is: all property, whether situated in the UK or abroad, including money, real and
personal property, things in action, intangible property and an interest in land or a right in
relation to any other property.
Criminal property can be direct (e.g. money from a drug deal) or indirect (the increase in the
value of a property obtained by mortgage fraud).
Criminal property also includes savings made from criminal activity, such as savings made from
tax evasion.
A person does not have to be convicted of the crime in order for you to suspect that their
property is criminal property.
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How does money laundering occur in property transactions?
When confiscation orders are made against criminals, more often than not, they include
real estate owned directly or indirectly by the criminal. As solicitors are involved in most
property transactions, it is important to be vigilant.
Common methods include:
•Direct investment in residential or commercial property with the proceeds of crime - this
may involve unusual amounts of cash or private funding given the known socio-economic
circumstances of the client.
•Use of third parties to hide who is the true owner - this may involve using family
members, associates, mortgage mules, companies or trusts to complicate the purchase.
•Unusual funding arrangements - this may involve purchasing a property outright and then
very quickly asking for a loan, getting funding from private sources rather than regulated
financial institutions, or seeking a loan while offering a large amount of savings as a
collateral.
•Flipping - which may or may not incorporate
mortgage fraud, but involves transferring
properties rapidly between criminals and their
associates for increasing (or occasionally
decreasing) values.
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What are a law firm's anti-money laundering obligations?
The Regulations require a law firm to:
•appoint a Money Laundering Reporting Officer (MLRO);
•establish and maintain appropriate and risk-sensitive policies and procedures for:
- client due diligence and ongoing monitoring;
- reporting;
- record keeping;
- internal control;
- risk assessment and management;
- monitoring, measurement and communication;
•train relevant staff.
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What are your anti-money laundering obligations?
While your specific obligations will depend on what your firm’s policies and procedures
require you to do, for every property retainer you should:
•know who your client is, by following your firm’s client due diligence procedures;
•understand why you are being asked to conduct the property purchase or sale in the way
the client wants it structured;
•understand the source of funds being used in the purchase and whether this is consistent
with the economic circumstances and profile of your client;
•monitor the retainer for warning signs of money laundering and mortgage fraud;
•talk to your MLRO if you have any concerns.
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Assessing money laundering risk
There are two types of money laundering (and fraud) risk in conveyancing transactions:
1. Identity risk
2. Retainer risk
Is this client who they say they are
(and are they a known criminal?)
Is this property or the funds being
used to purchase the property the
proceeds of crime?
The next few sections will look at these types of risks in turn. But first, test your
understanding of the legal context for your AML obligations:
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Knowledge check - question 1
Is the following statement true or false?
Criminal property does not include property located overseas.
True
False
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Knowledge check - question 1 answer
Is the following statement true or false?
Criminal property does not include property located overseas.
True
False
The correct answer is false.
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Knowledge check - question 2
Is the following statement true or false?
A transaction does not have to make a profit for it to be money
laundering.
True
False
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Knowledge check - question 2 answer
Is the following statement true or false?
A transaction does not have to make a profit for it to be money
laundering.
True
False
The correct answer is true.
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Knowledge check - question 3
Is the following statement true or false?
As an employee of a law firm I am required to comply with my firm’s AML
procedures and talk to my MLRO if I have any concerns.
True
False
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Knowledge check - question 3 answer
Is the following statement true or false?
As an employee of a law firm I am required to comply with my firm’s AML
procedures and talk to my MLRO if I have any concerns.
True
False
The correct answer is true.
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Knowledge check - question 4
Is the following statement true or false?
Only actual cash from criminal activity is criminal property.
True
False
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Knowledge check - question 4 answer
Is the following statement true or false?
Only actual cash from criminal activity is criminal property.
True
False
The correct answer is false.
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2. Managing identity risk
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Why identify?
Click each box to find out more.
What is Client Due
Diligence (CDD)?
Importance of knowing
who your client is
CDD means:
•identifying and verifying the client by independent means;
•Identifying and, on a risk based approach, verifying beneficial owners;
•obtaining information on the purpose and intended nature of the business relationship.
Under the Regulations you are required to undertake client due diligence on all clients who are
buying or selling real property. The Law Society takes the view that this includes the granting of
leases over property, especially where they are long term leases.
When carrying out CDD you must ensure that you comply with the requirements in the CML
Lenders’ Handbook as well as the Regulations.
You need to do client due diligence at the start of and throughout the retainer, as risk levels
within a transaction may change on instructions from your client. You should certainly carry out
CDD before you receive any funds.
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Why identify?
Click each box to find out more.
What is Client Due
Diligence (CDD)?
Importance of knowing
who your client is
In property transactions it is important to know who you are
actually acting for, not only for anti-money laundering reasons, but
also to ensure that you avoid conflicts of interest, that the person
has authority to act, that ownership is properly documented and
that you are not being used to perpetrate a fraud.
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Risks of identity fraud
The Regulations require due diligence on all clients in relation to property transactions,
however, not all will pose the same risk of identity fraud.
While each firm will have undertaken its own risk assessment, as a rule of thumb the risk
of identity fraud will follow a scale similar to this:
•At the base level of risk in terms of identity, are clients for whom you have acted before,
who come into the office at the start of the transaction and are able to provide their
passport, their water authority account and possibly a great bundle of paperwork relating
to the property which you sent to them when you acted on the purchase a number of years
previously.
•At the next level might be clients who you deal with face-to-face, who have all the
paperwork to show their identity and their ownership of the property for a number of
years, but for whom you have not acted before.
•At the level after that, may be
clients for whom you have acted
before, but because they both work,
cannot come into the office and so
they drop in their passports through
the letter box, send you certified
copies or whose identity you can
only verify electronically.
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Risks of identity fraud
•
Further up the scale might be clients who are moving to the area and have been
referred to you by the estate agent or the Law Society Find a Solicitor service and
because of their current location you are unlikely to meet until after the transaction
has completed.
•
At the high end of the identity risk scale would be clients who are currently living
abroad or purchases which are being conducted through companies or trusts,
particularly if those are registered abroad, as it may be more difficult to verify their
identity.
With commercial property transactions you will often be dealing with businesses, in which
case non face-to-face interaction may be more normal. In assessing identity risk the
key issue will be whether the person you are dealing with is actually from the business
they say they are from and that they have the authority to act on behalf of that
business. The smaller and more distant the client business is from your firm the higher
the risk of identity fraud.
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Warning signs on identity risks
Here are a few warning signs to be alert to which may suggest that there is a risk that the
person is not who they say they are:
•the client is overly secretive or evasive;
•the client is using an agent or intermediary or otherwise actively avoiding personal
contact without a good reason;
•there are attempts to disguise the real owner or parties to the transaction;
•the client’s age is not consistent with how long the Land Register says they have owned
the property;
•the structures used for the purchase are overly complex;
•the business entity cannot be found on the Internet and/or uses an email address with a
generic domain name (e.g. Hotmail, Gmail, and Yahoo!).
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Identifying clients
Click each box to find out more.
What documents do I need
for a natural person?
What documents do I need
for an entity?
Your firm's AML procedures will specify what documentation you need to obtain when conducting
client due diligence. Where there is joint or co-ownership for a property, you will need to
identify all individuals for whom you act.
Where the client is a natural person, it is generally recommended that you obtain a government
document that verifies their name and either their date of birth or their address. Most firms will
require you to obtain a passport or a photo driving licence.
Some firms will use electronic verification either instead of, or in addition to, obtaining identity
documents. Electronic verification can help identify certain attempted frauds more easily, such
as criminals pretending to be people who recently died, and may help highlight other higher risk
clients such as politically exposed persons or clients who are on a sanctions list.
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Identifying clients
Click each box to find out more.
What documents do I need
for a natural person?
What documents do I need
for an entity?
Where it is simply not possible to obtain a passport, drivers licence or e-verification check, there
are other documents you could consider which may adequately establish the client’s identity.
These are listed in the Law Society’s Anti-Money Laundering Practice Note, but you should
consult your own firm’s procedures first as usually they will require that a partner or the MLRO
has to be told and agree to the alternative documents being used.
Whether you obtain a passport, driving licence, e-verification check or some other document,
the REALLY important thing is to look at them. They are of absolutely no use in preventing
identity fraud or money laundering if they are just put on the file. You should also keep in mind
and demonstrate compliance with your obligations within the CML Lenders’ Handbook.
You should consider whether the information contained in those documents is consistent with
what you know about the client (e.g. appearance, age, spelling of names) and whether it
provides information which would indicate that there is a higher level of risk in the nature of the
retainer (e.g. they are a politically exposed person from a high risk jurisdiction, or they are
known to have convictions or be under investigation for acquisitive crime).
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Identifying clients
Click each box to find out more.
What documents do I need
for a natural person?
What documents do I need
for an entity?
When dealing with a trust or a business, such as a partnership, company, association or charity the
key steps are to establish that the entity or arrangement actually exist and that the person you are
dealing with has authority to make significant decisions like entering into property transactions.
Your firm will have its own procedures for what documents you require, but usually these will
include:
•certificates of incorporation;
•company registry listing;
•listing on a professional registry;
•trust deeds;
•charity registration;
•listing on a reputable e-verification provider.
For entities and arrangements without a separate legal identity, you will need to identify as
natural persons more of the individuals managing the entity, such the partners or the trustees. For
companies, you will still need some identifying information about some of the directors, but it is
only in higher risk cases you will need to obtain full identification information on all directors.
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Identifying beneficial owners
You will also need to carry out client due diligence on beneficial owners, where these
exist, so that you understand who is involved in the transaction.
While beneficial owners are not always criminals - in fact most are not - criminals
sometimes use front-men or companies to try to disguise their involvement in transactions,
so identifying any beneficial owners is crucial.
Under the Regulations, 'beneficial owner' means the individual who ultimately owns or
controls the client, or the person on whose behalf a transaction is being conducted.
A person that has at least a 25 per cent ownership interest in the client will usually be a
beneficial owner. If the client is owned by another entity, you will need to consider who
owns that entity as well.
If someone is acting as an agent or under a power of attorney, they will be the client, and
the person on whose behalf they are acting will be a beneficial owner.
Finally, if the intended ‘purchaser’ or ‘seller’ attends the office always in the company of
another person, and it is the other person who is actually directing the transaction, then
you should consider if the other person is a beneficial owner because of their control.
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Identifying beneficial owners
Such situations in the past have occurred where the client is entering into the transaction
under duress or is actually a ‘mortgage mule’. Mortgage mules may have been trafficked
into the UK, may have stolen or forged identity documents and be acting as fronts for the
organised crime group. While historically used to help organised crime groups obtain
mortgages over properties, they can also feature in cases where the purchase price is
completely privately funded.
You should look at your firm's policy and procedures for identifying the beneficial owner.
You will generally need to obtain at least their name and record any other identifying
details which are readily available.
In higher risk cases you will also need to verify the identity of the beneficial owner. This
verification can be through publicly available sources, information provided by the client,
and in a small number of really high risk cases, identity documents from the beneficial
owner themselves.
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Should you identify others who provide funding?
It is not unusual for property purchases to involve third party funding, for example, where
parents are providing deposit money for a child.
However, third party funding is also used as a method for criminals to obtain an interest in
property without coming into contact with the solicitor conducting the transaction.
There is no strict legal requirement under the Regulations to do due diligence on third
parties who are not beneficial owners. However, as it is the source of funds themselves
which pose the real risk of being criminal property, the Law Society strongly advises that
you should take some steps to identify and possibly verify the identity of the persons or
entities providing the funding.
This is useful not just from a money laundering perspective, but you will also need to
consider what interest that third party will have in the property, whether they will need
independent legal advice, how their interest in the property (either ownership or charge)
will be documented and registered, and whether there are tax or mortgage implications as
a result of this third party funding.
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Enhanced due diligence
Click each box to find out more.
When do I conduct
enhanced due diligence?
Non face-to-face clients
Politically Exposed
Persons
Under the Regulations, certain types of clients are deemed to pose higher levels of risk than
others, and therefore enhanced due diligence is required. In some cases the enhanced due
diligence is required because of increased risk of identity fraud, and in other cases because the
identity of the client means there is a greater risk of them having access to the proceeds of crime.
You need to carry out enhanced due diligence in the following circumstances:
•where a client is dealt with other than face-to-face;
•where a client is a Politically Exposed Person (PEP);
•in any other situation which presents a higher risk of money laundering.
Your firm will have procedures for what documents or processes are required for enhanced due
diligence, but generally the following methods apply:
•getting further verification of the client or beneficial owner's identity;
•asking for more detail on the ownership and control structure of the client;
•asking for further information on the purpose of the retainer or the source of the funds; and/or
•conduct enhanced ongoing monitoring.
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Enhanced due diligence
Click each box to find out more.
When do I conduct
enhanced due diligence?
Non face-to-face clients
Politically Exposed
Persons
In many cases, where a person is trying to commit fraud or engage in money laundering
they will try to limit the contact they have with the professionals engaged in the
transaction. This gives them more scope to use an alias or fraudulently use the identity of
real people. It also reduces the amount of coaching they have to do for mortgage mules
and limits the level of real questioning the professional can undertake.
In practice, firms will often ask for:
•e-verification as well as obtaining a copy of an identity document;
•having the identity document certified by another solicitor, professional, bank, GP or
through the Post Office verification service;
•payment of funds for disbursements to come from a bank account in the client’s name.
Your firm will have considered the requirements of the CML Leaders’ Handbook when
deciding what measures will be adopted for enhanced due diligence in non face-to-face
situations.
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Enhanced due diligence
Click each box to find out more.
When do I conduct
enhanced due diligence?
Non face-to-face clients
Politically Exposed
Persons
Not all Politically Exposed Persons (PEPs) are criminals. However, there have been a
number of cases of people who are appointed to political positions, who abuse their power
for personal gain. In many cases they will seek to move these ill-gotten gains out of the
country where they are in power and in recent years, property in the UK has been a
favoured destination.
The list of people who qualify as a PEP is extensive. It covers any person who has been
entrusted within the last year with one of the following prominent functions by a
Community institution, an international body or a state other than the UK:
•heads of state, heads of government, ministers and deputy or assistant ministers;
•members of parliament;
•members of supreme courts, of constitutional courts, or other high level judicial bodies;
•ambassadors, chargés d’affairs and high ranking officers in the armed forces;
•members of the administrative, management or supervisory bodies of state-owned
enterprises.
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Enhanced due diligence
Click each box to find out more.
When do I conduct
enhanced due diligence?
Non face-to-face clients
Politically Exposed
Persons
It is expected that from the end of 2014 you will also have to consider people holding
these roles in the UK as PEPs.
A PEP is also a family member and a known close associate of a primary PEP. A known close
associate is a person with whom there are close business relationships, joint ownership of
entities or beneficial ownership of entities set up by the primary PEP.
Where your client is a PEP:
•You will need to get senior management approval to act for them.
•You will need to consider their source of wealth as well as the source of funds for this
specific transaction.
•You will need to watch more closely for warning signs of money laundering. In these types
of cases this could include government or company funds being used to pay for private
expenditure or the involvement of complicated structures for ownership of the property or
it being put in the names of third parties.
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What about clients I've known forever?
Sometimes you will be asked to act for family members, people you studied with or
whom you have known socially or through business for years.
You may well ask why is it necessary to undertake due diligence on them... after all the
reason they are instructing you is that you know them.
While the risks of identity fraud are lower here:
•having a copy of a passport on file and verified contact details will help to reduce the
risk of fraudsters impersonating them and duping others in your firm into selling their
property; and
•you may move on from your current firm leaving them without access to the individual
who can verify the client’s identity in the future.
MLROs may decide in exceptional circumstances that it is appropriate for the partner or
fee earner who knows the client to provide a certificate outlining how they know the
client and that the identity details are correct. However, most clients will be used to
providing identity documents when dealing with professionals and when undertaking
significant transactions. So, as a general rule, undertaking normal client due diligence is
still advisable to ensure that the firm has proper records.
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Checking sanctions lists
There is no specific requirement for law firms to check every client against the sanctions
list, but dealing in the economic resources of a designated person is a criminal offence.
Banks will screen most or all payments against the sanctions list, including the name of
the sender, the recipient and the reason for payment.
While some firms may be tempted to leave consideration of sanctions to the bank, on
the basis that they will find out if there is a problem when the bank stops the payment,
this is likely to cause significant stress and challenges for the client and the firm if it
happens on the day of completion.
If there is a false/positive hit (i.e. the client is not a designated person but they have a
similar name to someone who is) then it may still take some hours or days to liaise
between the client and the bank to help them establish that your client is not a
designated person.
If, however, your client is on the sanctions list, you will require a licence from the Asset
Freezing Unit and this can take some weeks to obtain.
Your firm will have a procedure for undertaking sanctions checks and if they use everification these should happen automatically. However when reviewing your client due
diligence material you should consider at an early stage whether there is any link to a
jurisdiction which is subject to sanctions (e.g. Iran, Syria etc.) which mean you should
check the sanctions list to be sure it is legally permissible to undertake the transaction.
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Knowledge check - question 1
Is the following statement true or false?
All clients present the same risk of identity fraud.
True
False
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Knowledge check - question 1 answer
Is the following statement true or false?
All clients present the same risk of identity fraud.
True
False
The correct answer is false.
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Knowledge check - question 2
Is the following statement true or false?
A beneficial owner is a person who ultimately owns or controls a client, or
on whose behalf the transaction is undertaken.
True
False
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Knowledge check - question 2 answer
Is the following statement true or false?
A beneficial owner is a person who ultimately owns or controls a client, or
on whose behalf the transaction is undertaken.
True
False
The correct answer is true.
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Knowledge check - question 3
Is the following statement true or false?
It is advisable to identify third parties who provide funding for a property
purchase.
True
False
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Knowledge check - question 3 answer
Is the following statement true or false?
It is advisable to identify third parties who provide funding for a property
purchase.
True
False
The correct answer is true.
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Knowledge check - question 4
Is the following statement true or false?
Only foreign people are on the sanctions list.
True
False
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Knowledge check - question 4 answer
Is the following statement true or false?
Only foreign people are on the sanctions list.
True
False
The correct answer is false.
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3. Managing retainer risks
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What are the retainer risks?
While there are a lot of things that can potentially go wrong in a property retainer, we
are going to focus on the risks of money laundering.
As stated earlier, you must have existing criminal property in order to engage in money
laundering. So this is either the house itself or the money for the purchase.
The property itself may be criminal property if:
•it was bought with the proceeds of crime;
•mortgage or loan repayments were made with the proceeds of crime;
•there have been criminal regulatory breaches relating to the house which have saved
the owner money.
Whether the property or the purchase price is the proceeds of crime, key techniques for
laundering through property include:
•direct investment - where often there will be significant levels of cash or private
funding or unusual collateral arrangements;
•obscuring of ownership - through purchasing through others or via companies or trusts;
•transferring value between individuals in a criminal group - through flipping or repeated
sales at increasing or decreasing values.
The normal requirement to provide money for fees, expenses and deposits is also
another factor which may interest criminals seeking to launder money. Paying those
funds into your firm’s account, then saying that the purchase/sale fell through and
asking for you to either return the funds to them or to third parties is a way to make
funds look more legitimate to banks and others in the future.
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Source of funds and other risks
You are not required to prove that the source of funds are clean, but that they are
consistent with the client’s risk profile and means and that there is no other information
which would give rise to a suspicion that the funds are from an illegitimate source.
While each firm will have undertaken its own risk assessment, as a rule of thumb the risk
relating to source of funds will follow a scale similar to this:
•At the lowest level of risks might be a married couple selling their two bedroom house
to buy a larger property because a baby is on the way, with the difference between sale
and purchase price being funded by an increased mortgage. Or it might be an elderly
couple selling their large house to downsize to a retirement flat and purchasing the new
property entirely from the proceeds of sale.
•A first-time buyer obtaining a high percentage mortgage with the benefit of some
accumulated savings or perhaps a gifted deposit from family members, may also be
lower risk (bearing in mind the need to understand whether the gift from family
members is consistent with the family members’ risk profile and means).
•A local business or a well known large company with recent audited accounts showing
good turnover, purchasing larger premises with some private funding and a loan from a
regulated financial institution may also be lower risk.
•Significant levels of cash or private funding (even if it is in a bank account) will increase
the level of risk and should cause you to consider whether the funding is proportionate
with the socio-economic or business profile of the client.
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Source of funds and other risks
•
Higher levels of risk will exist if the funding is coming from third parties unconnected
with the purchaser, from jurisdictions with poor AML compliance or high risk of
corruption or other criminal activities, or via complicated payment structures.
•
Specific information that the client has been convicted for an acquisitive crime, is
known to be currently under investigation for such a crime or has known connections
with criminals will mean there is a very high risk that the property or the purchase
funds are the proceeds of crime.
There are three categories of warning signs which will help identify conveyancing
retainers which pose a risk of money laundering:
•
•
•
choice of lawyer;
source of funds;
nature of the retainer.
We will now look at each of those in turn.
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Warning signs on choice of lawyer
•
•
•
•
•
You are being instructed on a retainer where the client is at a distance from you
and/or from the property without a legitimate reason.
You do not have experience in the particular type or size of conveyance you are
being asked to undertake.
The client is prepared to pay a substantially higher level of fees than usual, without
a legitimate reason.
The client has changed solicitor or conveyancer a number of times in a short space of
time without a legitimate reason.
The client has only recently purchased the property and is using a different solicitor
to sell the property again without a legitimate reason.
35/70
Warning signs on source of funds
•
•
•
•
•
•
•
•
•
•
The transaction involves a disproportionate amount of private funding or cash,
especially if it is inconsistent with the socio-economic profile of the individual or the
business profile of the entity.
The client or a third party is contributing a significant sum in cash as collateral
provided by the borrower/debtor, rather than simply using those funds directly,
without logical explanation.
Third party funding for either the property or the fees without apparent connection
or legitimate explanation.
The funds are received from or asked to be sent to a foreign jurisdiction where there
is no apparent connection between the jurisdiction and the client.
The funds are received from or sent to high risk jurisdictions.
Payment is coming through multiple bank accounts without good reason.
A residential property is being funded by a company, business or government without
legitimate reason.
There is a request to change the payment procedures previously agreed upon without
a logical explanation.
Finance is being provided by a lender, either a natural or legal person, other than a
credit institution, with no logical explanation or economic justification.
The collateral which is being provided for the purchase is in a high risk jurisdiction.
36/70
Warning signs in the nature of the retainer
•
•
•
•
•
•
•
The transaction is unusual for your firm or generally because of its size, nature,
frequency or manner of execution.
Creation of a complicated ownership structure to purchase the property where there
is no legitimate or economic reason.
There are several elements in common between a number of transactions in a short
period of time without logical explanations.
Back-to-back property transactions with rapidly increasing or decreasing value
Abandoned transactions with no concern for the fee level or after funds have been
received.
Investment in property in the absence of any links with the place where the property
is located and/or any financial advantage from the investment.
The client seems unusually disinterested in the purchase.
37/70
Legal obligations
Click each box to find out more.
More to due diligence than
a passport
Reporting suspicions
What is suspicion?
Simply verifying identity is not the end of your AML obligations under the Regulations.
You are required to:
•
•
understand the nature of the retainer; and
consider the conduct of the retainer, including the source of funds, to ensure that it is
consistent with your knowledge of the client, their business and their risk profile.
This is not something you can simply give to a computer or a secretary to do for you. Fee
earners, partners and accounts staff need to do this, and most importantly need to keep
contemporaneous notes of the enquiries made and the answers provided.
38/70
Legal obligations
Click each box to find out more.
More to due diligence than
a passport
Reporting suspicions
What is suspicion?
As discussed earlier in this programme, you will commit an offence if you participate in
money laundering being undertaken by a client and if you fail to make a report about any
suspicion of money laundering.
Your key defence is making a report to your MLRO if you have a suspicion of money
laundering.
They can then decide:
•
•
•
what further questions to ask the client or others;
whether a report to law enforcement needs to be made;
whether it is appropriate to keep acting and if you need consent from law enforcement
to do so.
38/70
Legal obligations
Click each box to find out more.
More to due diligence than
a passport
Reporting suspicions
What is suspicion?
There is no magic formula for what constitutes a suspicion. While the courts have provided
some assistance, by saying that a suspicion is a possibility that is more than fanciful, they
have also said it has the same meaning that you would use in everyday life.
If there is anything unusual about a conveyance, you should consider talking it over with
the relevant partner or the MLRO, as it may be a sign that there are other areas of legal
advice you need to provide, further searches you need to undertake, or a warning that you
are being used to help commit a fraud.
In terms of money laundering, there are two key ways that you will form a suspicion of
money laundering which you should definitely discuss with the MLRO.
38/70
Legal obligations
Click each box to find out more.
More to due diligence than
a passport
Reporting suspicions
What is suspicion?
Firstly, because you have information which causes you to suspect your client or another
person is involved in a particular type of criminal conduct (e.g. tax fraud, planning or
environmental offences, bribery).
Alternatively, because the manner in which the money is being handled is such that it gives
rise to an irresistible inference that the property is of illicit origin.
So how do the warning signs listed previously interact with suspicions? As a general rule:
•
•
one warning sign is usually not enough to form a suspicion, but is a basis for asking
more questions; and
a cluster of warning signs without a good explanation is usually grounds for a suspicion
on the second approach outlined above.
38/70
Practically undertaking source of funds checks and
ongoing monitoring
Asking about the source of funds at an early stage will help you to identify concerns,
mitigate those concerns and reduce the risk of delays at the time of completion. The
extent to which you ask further questions about those funds and seek documentary
evidence will depend on the risk associated with the retainer.
Your firm will have a procedure for asking about source of funds. Generally you will be
required to take reasonable and risk-based measures to:
•ask where the funds are coming from;
•assess whether the response is reasonable in light of the other information you have
about the client;
•if the retainer poses higher risk, ask for evidence of the source of funds; and
•be alert to warning signs which may cause you to have a suspicion of money laundering.
The client does not need to feel this is an interrogation and the questions can be asked
nicely in the context of ensuring that you can give the client full and proper advice
about related issues (such as taxation consequences, recording any charges or equitable
interests properly) and to satisfy regulatory requirements around funds coming through
the client account.
Where the source of funds is low risk and the explanation is consistent with profile and
will involve funds coming from a bank account in the client’s name or from loans or
mortgages in the client’s name - it may be appropriate to note this on the file, advise
the accounts staff and monitor to ensure that this in fact occurs.
39/70
Practically undertaking source of funds checks and
ongoing monitoring
In other situations involving private funding, even where there is low risk, it is prudent
to ask for some supporting evidence for the source of funds explanation. For a business,
copies of recent accounts or tax returns would be sensible and should be easily
produced. For individuals, it will really depend on the source of funds.
If the funds are from:
You can ask for:
The sale of a house
some time ago
A copy of the completion statement and the bill from the
solicitors who acted
An inheritance
A letter from the executor or the solicitor who obtained the
probate
A redundancy or
retirement payout
Letters from the employer or pension provider showing the
entitlement
A personal injuries
settlement
A letter from the solicitor who acted in the personal injuries
matter
An insurance payout
A letter from the insurer confirming the payout
Winning the lottery or
other successful betting
A letter from the lottery or copies of the betting slips or online
betting accounts
Savings over a period of
time/investments
Bank statement covering a period of time showing the regular
deposits that are consistent with the client’s legitimate means
As with identity documents, the important thing is to actually look at the supporting
documents provided and make sure they do actually support the explanation provided.
40/70
Aborted transactions
Sometimes property purchases/sales fall through for legitimate reasons, and sometimes
this will happen late in the purchasing process. While an aborted transaction is a warning
sign of money laundering, think carefully about whether it is a basis for a suspicion.
Consider what information you had about source of funds to start with. If the source of
funds were legitimate to start with, there is nothing about returning them which will
make them criminal property.
Ask if there is anything about the manner in which the transaction has been aborted
and/or the subsequent refund instructions that cause you to be concerned that the
information you had about source of funds before may not be correct. For example the
instructions that the transaction is to be aborted come from a third party or you are
asked to pay the funds to a third party.
41/70
Knowledge check - question 1
Is the following statement true or false?
Unusual clients or instructions are a warning sign of money laundering.
True
False
42/70
Knowledge check - question 1 answer
Is the following statement true or false?
Unusual clients or instructions are a warning sign of money laundering.
True
False
The correct answer is true.
42/70
Knowledge check - question 2
Is the following statement true or false?
I must stop acting for a client if I see a warning sign.
True
False
43/70
Knowledge check - question 2 answer
Is the following statement true or false?
I must stop acting for a client if I see a warning sign.
True
False
The correct answer is false.
43/70
Knowledge check - question 3
Is the following statement true or false?
I should keep notes of any questions I ask, and the answers I receive.
True
False
44/70
Knowledge check - question 3 answer
Is the following statement true or false?
I should keep notes of any questions I ask, and the answers I receive.
True
False
The correct answer is true.
44/70
Knowledge check - question 4
Is the following statement true or false?
Several warning signs may be grounds for suspicion.
True
False
45/70
Knowledge check - question 4 answer
Is the following statement true or false?
Several warning signs may be grounds for suspicion.
True
False
The correct answer is true.
45/70
4. When you have a suspicion or law
enforcement take an interest
46/70
Talking to your MLRO
If you suspect that money laundering is occurring or have concerns about a transaction,
you should always raise this with your firm's MLRO.
You should raise any concerns about money laundering as soon as they arise. Don't wait
until you are about to exchange contracts, as this may cause delays to the transaction.
The MLRO will decide whether it is appropriate for you to continue with the transaction
and if consent from the Serious Organised Crime Agency is required to proceed.
Consent may initially take up to seven working days to be granted. If consent is refused,
it can be up to a further 31 days before you can proceed with the transaction, depending
on whether law enforcement obtain a restraint order over the property or the purchase
funds and if the MLRO still decides it is appropriate for the firm to continue to act.
While awaiting consent, you will need to be careful not to engage in tipping off or
prejudicing an investigation.
47/70
What can you do while waiting for consent
Seeking consent does not mean that you must cease all work on a transaction.
You must not do anything which could involve money laundering, such as sending or
receiving funds, exchanging contracts or proceeding to completion.
However, other activity, such as searches and correspondence, could continue.
Your firm’s MLRO will authorise the work that you can undertake while awaiting consent.
48/70
Talking to clients
Many solicitors are very nervous about committing an offence of tipping off, and in the
past some have taken the approach of simply not answering the telephone or pretending
to be on leave until consent is granted.
Tipping off is only an issue if:
•
•
•
you have made a report to the MLRO or the MLRO has made a report to SOCA;
you specifically tell the client that you or the MLRO have made the report; and
telling the client this information is likely to prejudice an investigation by law
enforcement.
It is NOT tipping off to:
•
•
•
include a term in your client care letter that says you have to ask for due diligence
material and you will need to report any suspicious transactions;
ask your client about the source of funds for the purchase;
query unusual aspects of the transaction or ask the client to provide more
information to help explain warning signs.
49/70
Talking to clients
Your client may need advice on their legal situation if they are currently in possession of
criminal property, about to get criminal property or about to commit a criminal offence. In
this situation, you should always contact your MLRO about what advice can be provided
and who will provide it.
You will also need to be careful about not committing an offence of prejudicing an
investigation. This includes not destroying documents or dissipating funds yourself or
encouraging your client or others to do so.
If you are unsure about what to say to your client, always talk to your firm's MLRO.
50/70
Talking to law enforcement
Law enforcement may seek access to client files to investigate whether your client, and
possibly you or a fellow solicitor, have committed a criminal offence.
You are required to comply with the law and law enforcement. However, you are also
required to keep your client’s information confidential and protect legal professional
privilege.
All requests for information about a client or for files should be provided to the MLRO or
other designated person in line with the firm’s procedures, without commenting on
whether you act for the client.
You should follow any directions received from the MLRO about the future conduct of the
file.
The MLRO will need to:
•ask to be provided with a production order or notice to be able to provide information
to law enforcement;
•consider whether this new information now gives rise to a suspicion about the
transaction;
•consider whether you can continue acting for the client and what you can say to the
client.
Further advice on talking to law enforcement and responding to production orders and
notices is contained in the Law Society’s Responding to a Financial Crime Investigation
Practice Note.
51/70
Other liability
Making a report and obtaining consent is only a defence against money laundering
charges. It is a not a defence to:
•engaging in the underlying offence - such as fraud; or
•any civil claims that you acted as a constructive trustee when handling the proceeds of
crime.
The civil law provides an opportunity for victims to take action against wrongdoers and
those who have assisted them. Victims may target the professional adviser in civil claims
because they are more likely to be able to pay compensation, often by reason of their
professional indemnity cover.
This is why even though consent may be available, you and the MLRO should carefully
consider whether it is appropriate to continue with a retainer.
52/70
Knowledge check - question 1
Is the following statement true or false?
If I think my client is about to come into possession of criminal property, I
should tell my MLRO.
True
False
53/70
Knowledge check - question 1 answer
Is the following statement true or false?
If I think my client is about to come into possession of criminal property, I
should tell my MLRO.
True
False
The correct answer is true.
53/70
Knowledge check - question 2
Is the following statement true or false?
Once a report is made to SOCA, I must not have any contact with the
client until we receive consent to proceed.
True
False
54/70
Knowledge check - question 2 answer
Is the following statement true or false?
Once a report is made to SOCA, I must not have any contact with the
client until we receive consent to proceed.
True
False
The correct answer is false.
54/70
Knowledge check - question 3
Is the following statement true or false?
It is not tipping off to ask my client to explain unusual features in the
transaction or warning signs.
True
False
55/70
Knowledge check - question 3 answer
Is the following statement true or false?
It is not tipping off to ask my client to explain unusual features in the
transaction or warning signs.
True
False
The correct answer is true.
55/70
Knowledge check - question 4
Is the following statement true or false?
If the police suspect my client is laundering money, I should give them
any files that they ask for.
True
False
56/70
Knowledge check - question 4 answer
Is the following statement true or false?
If the police suspect my client is laundering money, I should give them
any files that they ask for.
True
False
The correct answer is false.
56/70
5. Scenarios
57/70
Scenario 1 – Part 1
Your long-standing local client wishes to purchase a property for
£550,000. He tells you he is expecting to receive a large sum of money in
the near future and wants to buy the property in cash.
Which of the following statements is false?
(A)
I still need to ask about the source of funds even though this is a long-standing client.
(B)
Acting for the client for many years, in the absence of information that they are
involved in criminal activity, means this retainer is lower risk.
(C)
Cash purchases are a warning sign of money laundering.
(D) I have to prove that the purchase funds are clean.
58/70
Scenario 1 – Part 1 answer
Your long-standing local client wishes to purchase a property for
£550,000. He tells you he is expecting to receive a large sum of money in
the near future and wants to buy the property in cash.
Correct answer is (D):
I have to prove that the purchase funds are clean.
You do not have to prove that the purchase funds are clean. You do have consider
whether the source of funds are consistent with the client's risk profile and whether
you have a suspicion of money laundering.
58/70
Scenario 1 – Part 1 - incorrect answers
(A)
This is true. A person’s circumstances may change, so even long-standing clients
present some risk in relation to source of funds, requiring you to ask questions.
(B)
This is true. If you have known the client for a long time, then there is less
opportunity for identity fraud and having acted for them before you will have a more
detailed understanding about their source of income and source of wealth, giving you
a better understanding of their risk profile.
(C)
This is true. Large payments in cash, especially if they are disproportionate to the
client’s socio-economic profile are a warning sign of money laundering, as most
criminal services and products are paid for by cash.
59/70
Scenario 1 – Part 2
You ask about the source of funds and are told that the money is being
provided by your client's parents’. He tells you that his parents have a
successful property development company, and have purchased,
renovated and sold several properties lately.
Which of the following statements is false?
(A)
I should understand how the parents are able to afford such a substantial
contribution.
(B)
I don't need to ask any questions about the parents' identity or source of funds as
they are not my client.
(C)
I should ask whether the money is a gift or loan, as they may need further advice.
(D)
It is good practice to keep records of the enquiries I make in relation to this
transaction.
59/70
Scenario 1 – Part 2 answer
You ask about the source of funds and are told that the money is being
provided by your client's parents. He tells you that his parents have a
successful property development company, and have purchased,
renovated and sold several properties lately.
Correct answer is (B):
I don't need to ask any questions about the parents' identity or source of funds as they
are not my client.
While asking these questions is not specifically required by the Regulations, you are
required to be alert to warning signs of money laundering and make appropriate
enquires so that you are satisfied that you do not have a suspicion. Third party
funding for property transactions is a well known method of money laundering.
60/70
Scenario 1 – Part 2 – incorrect answers
(A)
This is true. While you can ask this diplomatically, it is important to understand the
You ask about the source of funds and are told that the money is being
funding arrangements for the transaction. Funding purportedly coming from a family
provided
by your
client's
He tells you
his parents
member
is a key
warning
sign ofparents.
money laundering.
If thethat
parents
(or other have
familya
successful
property
development
company,
andto
have
purchased,
member)
do not have
apparent
legitimate means
of income
provide
such a
and sold
properties
lately.activity, or the
generous gift (or renovated
loan) then either
they several
may be engaged
in criminal
client may have given the funds to the parents in order to make it look more
legitimate. Even if the funds are legitimate, there may be tax implications for the
parents about which they need legal advice.
(C)
This is true. Even if the funds are legitimate, there are other purposes for asking
about source of funds. To act in your client’s best interests you should ensure that all
parties are clear on whether this is a gift or a loan and, if the latter, what its terms
are. This should be clearly documented.
(D)
This is true. Whether for outcomes focused regulation, criminal investigations, civil
claims or client complaints it is important to keep contemporaneous notes, especially
on matters which evidence your compliance with legal obligations.
60/70
Scenario 1 – Part 3
The funds are received into your client account from the parents' bank
account. The day after receiving the money, you hear on the news that
the parents have been arrested for tax evasion.
Which of the following statements is false?
(A)
The proceeds of tax evasion will be criminal property.
(B)
You may suspect that a retainer involves criminal property because of information
which causes you to suspect your client or another person are involved in a generic
type of criminal activity.
(C)
A criminal offence must attract a jail term of at least five years before the proceeds
can be criminal property.
(D) The funds in the client account are potentially criminal property and I should tell my
MLRO.
61/70
Scenario 1 – Part 3 answer
The funds are received into your client account from the parents' bank
account. The day after receiving the money, you hear on the news that
the parents have been arrested for tax evasion.
Correct answer is (C):
A criminal offence must attract a jail term of at least five years before the proceeds
can be criminal property.
Criminal property is all property which is, or represents, a person's benefit from ANY
criminal conduct, even if they have not been convicted.
61/70
Scenario 1 – Part 3 – incorrect answers
(A)
This is true. Criminal property includes all property which is or represents a person’s
The funds
arecriminal
received
into your
client
account
fromdoes
the not
parents'
bank
benefit
from any
conduct,
including
savings.
A person
need to
be
convicted
in The
orderday
for criminal
property the
to exist.
account.
after receiving
money, you hear on the news that
the parents have been arrested for tax evasion.
(B)
This is true. Information that a person is involved in specific or general criminal
activity may form the basis for a suspicion of money laundering.
(D)
This is true. Because a suspicion is a possibility that is more than fanciful, and the
test for arresting a person is a reasonable prospect of conviction; and because
criminal property is any benefit from any crime - you should have a suspicion that the
firm is engaging in money laundering by having the money in the client account and
you need to tell the MLRO immediately!
61/70
Scenario 2 – Part 1
A new client, a private company in Singapore, asks you to acquire some
commercial property in London. Your firm is in Leicester and does not
usually undertake work for international clients.
Which of the following statements is false?
(A)
I should ask the client why they have chosen my firm given the different locations of
the client, the property to be purchased and the firm.
(B)
Clients who are unusual for my firm could be a warning sign of money laundering.
(C)
I only have to obtain CDD in relation to residential property transactions.
(D) A new client from a foreign jurisdiction may increase the risk of the retainer.
63/70
Scenario 2 – Part 1 answer
A new client, a private company in Singapore, asks you to acquire some
commercial property in London. Your firm is in Leicester and does not
usually undertake work for international clients.
Correct answer is (C):
I only have to obtain CDD in relation to residential property transactions.
All real estate transactions require CDD.
63/70
Scenario 2 – Part 1 – incorrect answers
(A)
This is true. A client instructing a firm which is at a distance from the client and the
property is a warning sign of money laundering, especially if there is no legitimate
explanation. You should ask further questions to understand why the client is
instructing you.
(B)
This is true. A client who does not fit the normal profile of clients for your firm may
be a warning sign for money laundering and may increase the risk for the retainer,
especially if they are asking you to undertake transactions which are outside your
normal expertise or in jurisdictions you are not familiar with. You should ask further
questions to understand why the client is instructing you and to ensure that you have
sufficient expertise to deal with the transaction to an appropriate standard.
(D)
This is true. New clients will generally pose more of a risk than existing clients as you
have to learn about their normal business and establish a risk profile to better
understand what might be ‘unusual’ for them.
63/70
Scenario 2 – Part 2
You ask about the beneficial owners of the client and are told that this is
a family company. 40 per cent of the shares are owned by the father, who
is an ambassador to a European country, and the rest of the shares are
owned in equal shares by his two sons.
Which of the following statements is false?
(A)
There is nothing in the information provided which would increase the risk of the
retainer.
(B)
Both the father and the sons will be beneficial owners.
(C)
You may still apply enhanced due diligence on the basis that the retainer could
represent a higher risk of money laundering.
(D)
Enhanced due diligence may involve obtaining extra information to verify identity or
closer ongoing monitoring.
64/70
Scenario 2 – Part 2 answer
You ask about the beneficial owners of the client and are told that this is
a family company. 40 per cent of the shares are owned by the father, who
is an ambassador to a European country, and the rest of the shares are
owned in equal shares by his two sons.
Correct answer is (A):
There is nothing in the information provided which would increase the risk of the
retainer.
You have a PEP who is a beneficial owner. While they are based in a European country,
not all European countries are low risk for corruption and you do not have information
on which country this person is an ambassador for. You are dealing with a foreign
private company, which may make it more difficult to get information about the
company. The use of front companies is a key method employed by corrupt PEPs and
the client is unusual for your firm. So there are may reasons why the risk of this
retainer has just increased.
64/70
Scenario 2 – Part 2 – incorrect answers
(B) This is true. All three have more than a 25 per cent ownership share.
(C)
This is true. As the beneficial owner is a PEP, whilst they are based in a European
country, not all European countries are low risk for corruption and you do not have
information on which country this person is an ambassador for. You are dealing with a
foreign private company, which may make it more difficult to get information about
the company. The use of front companies is a key method employed by corrupt PEPs
and the client is unusual for your firm. So it would be appropriate to apply enhanced
due diligence.
(D)
This is true. Enhanced ongoing monitoring may involve:
• getting further verification of the client or beneficial owner's identity;
• asking for more detail on the ownership and control structure of the client;
• asking for further information on the purpose of the retainer or the source of the
funds; and/or
• conducting enhanced ongoing monitoring.
64/70
Scenario 2 – Part 3
You are sent the purchase funds in advance from a Singapore bank
account in the name of the company. A week later you are told that the
purchase has fallen through and they would like you to transfer the funds
to a Swiss bank account in the name of the wife of one the sons.
Which of the following statements is false?
(A)
I need to consider whether this constitutes using my client account as a banking
facility.
(B)
I do not need to worry about the actual source of the funds because they have come
through a bank account.
(C)
A sudden change in a retainer is a warning sign of money laundering.
(D) Payments to third parties are a warning sign of money laundering.
65/70
Scenario 2 – Part 3 answer
You are sent the purchase funds in advance from a Singapore bank
account in the name of the company. A week later you are told that the
purchase has fallen through and they would like you to transfer the funds
to a Swiss bank account in the name of the wife of one the sons.
Correct answer is (B):
I do not need to worry about the actual source of the funds because they have come
through a bank account.
Even if funds come through a bank account, it does not mean they are clean. You
should consider whether you have a suspicion of money laundering in light of all of
the facts. The sudden change in instructions, an aborted transaction, a request for
payment to a third party, payment of company money to a private individual without
evidence of entitlement, and payment to a bank account in a jurisdiction known for
banking secrecy are all possible warning signs of money laundering.
65/70
Scenario 2 – Part 3 – incorrect answer
(A)
This is true. Where you have an aborted transaction with a request to pay money to a
third party, it is likely that your client account is being used as a bank account
contrary to SRA Accounts Rules 2011.
(C)
This is true. The sudden change in instructions, an aborted transaction, a request for
payment to a third party, payment of company money to a private individual without
evidence of entitlement, and payment to a bank account in a jurisdiction known for
banking secrecy are all possible warning signs of money laundering.
(D)
This is true. The sudden change in instructions, an aborted transaction, a request for
payment to a third party, payment of company money to a private individual without
evidence of entitlement, and payment to a bank account in a jurisdiction known for
banking secrecy are all possible warning signs of money laundering.
65/70
Scenario 3 – Part 1
A married couple, who are permanent UK residents but have Syrian
passports, are joint shareholders and directors of a UK company which
they registered online with Companies House five months ago. As
directors they retain you to purchase investment properties for the
company.
Which of the following statements is false?
(A)
As there are financial sanctions against Syria, I should check whether the company or
the shareholders are listed on the sanctions list.
(B)
Due diligence on the client may include obtaining the registration details from
Companies House.
(C)
As there are two joint shareholders in this company, they will both be beneficial
owners and I will need to identify them.
(D) Only foreigners and individuals are on the sanctions list.
66/70
Scenario 3 – Part 1 answer
A married couple, who are permanent UK residents but have Syrian
passports, are joint shareholders and directors of a UK company which
they registered online with Companies House five months ago. As
directors they retain you to purchase investment properties for the
company.
Correct answer is (D):
Only foreigners and individuals are on the sanctions list.
While sanctions are often issued against foreign regimes, the individuals and
companies on the sanctions list may reside or operate in the UK.
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Scenario 3 – Part 1 – incorrect answers
(A)
This is true. While not every Syrian national is subject to sanctions, the connection
between this transaction and Syria increases the risk that the client may be on the
sanctions list. To avoid committing a criminal offence and reduce the impact of
potential long delays while awaiting a licence, you should check if either the
company or the shareholders are on the HM Treasury sanctions list.
This is true. While your firm will have its procedures for undertaking due diligence
on entities, the standard verification processes include:
(B)
(C)
•
•
•
•
•
•
certificates of incorporation;
company registry listing;
listing on a professional registry;
trust deeds;
charity registration;
listing on a reputable e-verification provider.
This is true. A person with ownership greater than 25 per cent in a company is a
beneficial owner.
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Scenario 3 – Part 2
The directors advise that there are five properties that they wish to
purchase, with a total purchase price of £1.5 million. The share capital of
the company is only worth £12,000. You are told that the funds for the
purchases will be coming from business profits and a £500,000 loan from
a private company in Columbia.
Which of the following statements is true?
(A)
As long as the funds come through a bank account in the company's name there is no
concern.
(B)
Loans from private companies pose no greater risk of money laundering than a loan
from a regulated financial institution.
(C)
I need to carefully consider the source of funds given the low level of capital, high
level of private funding, and the use of funds from a high risk jurisdiction.
(D)
The short length of time that the company has been operating is not a relevant factor
for me to consider.
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Scenario 3 – Part 2 answer
The directors advise that there are five properties that they wish to
purchase, with a total purchase price of £1.5 million. The share capital of
the company is only worth £12,000. You are told that the funds for the
purchases will be coming from business profits and a £500,000 loan from
a private company in Columbia.
Correct answer is (C):
I need to carefully consider the source of funds given the low level of capital, high
level of private funding, and the use of funds from a high risk jurisdiction.
All of these factors, as well as the short length of time that the company has been
operating by comparison with the funds it is claiming to have made as profits, are
warning signs of money laundering.
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Scenario 3 – Part 2 – incorrect answer
(A)
This is false. Even if funds come through a bank account, it does not mean they are
clean. You should consider whether you have a suspicion of money laundering in light
of all of the facts. The low level of capital, high level of private funding, the use of
funds from a high risk jurisdiction and the short length of time that the company has
been operating by comparison with the funds it is claiming to have made as profits
are warning signs of money laundering.
(B)
This is false. Private funding from a non-regulated source poses a higher risk of
money laundering than from a regulated financial institution. You should seek to
understand why the other entity is providing the funding, and what their source of
funds are, especially if there is no apparent connection between the parties.
(D)
This is false. If a company has only been operating for a very short time, but is
making large purchases or other financial transactions the question to ask is where
did they get the money from. If they had a low capital base, no recourse to external
funding, and they haven’t been operating long enough to make profits that large –
then it could be that the company is acting as a front to invest criminal property.
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Scenario 3 – Part 3
You are ready to complete on one property and send the funds through to
the other side, who complain two hours later that the funds have not
arrived. The bank says the delay is due to compliance with UK legal
obligations. You receive a call from law enforcement asking for your files
as the owner of the property is on a sanctions list due to involvement
with terrorism.
Which of the following statements is true?
(A)
I cannot speak to the client at all as this would be tipping off.
(B)
I have to hand the files over to law enforcement because they asked for them.
(C)
I need to speak to my MLRO and to tell law enforcement that all contact must be
through the MLRO.
(D) I only need a licence to proceed if it is my client who is on the sanctions list.
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Scenario 3 – Part 3 answer
You are ready to complete on one property and send the funds through to
the other side, who complain two hours later that the funds have not
arrived. The bank says the delay is due to compliance with UK legal
obligations. You receive a call from law enforcement asking for your files
as the owner of the property is on a sanctions list due to involvement
with terrorism.
Correct answer is (C):
I need to speak to my MLRO and to tell law enforcement that all contact must be
through the MLRO.
This file has just got very 'interesting' with potential criminal and disciplinary
breaches and civil claims. The MLRO must be contacted and you should follow their
directions on future contact with the file.
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Scenario 3 – Part 3 – incorrect answers
(A)
This is false. No suspicious activity report has been made to or by the MLRO – so this
cannot be tipping off. The fact that a person is on a sanctions list and why they are
on it is a matter of public record and can generally be discussed with the client.
However in light of the police interest in the matter, you should consult with the
MLRO on how to deal with the client going forward.
(B)
This is false. Due to confidentiality requirements, a law firm should always ask for a
court order to produce files. As a fee earner/staff member, you should direct all
enquiries from law enforcement to your MLRO, who can coordinate the firm’s
response, considering issues such as legal professional privilege and potential
criminal or civil liability for the firm.
(D)
This is false. It is a generally a criminal offence to directly or indirectly make funds
or economic resources available to or for the benefit of a designated person without
a licence. This covers selling a house belong to, buying a house from, or purchasing a
house for a designated person. All parties to the transaction, including the lawyers
and the banks will require a licence to proceed.
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Resources
•
CML Lenders’ Handbook for England and Wales
•
HM Treasury financial sanctions
•
Law Society’s Anti-Money Laundering Practice Note
•
Law Society anti-money laundering web pages
•
Law Society article: E-verification – cutting through the sales pitch
•
Law Society Find a Solicitor web pages
•
Law Society’s Responding to a Financial Crime Investigation Practice Note.
•
Law Society Risk and Compliance Service
•
Money Laundering Regulations 2007
•
Post Office document certification service
•
Proceeds of Crime Act
•
Serious Organised Crime Agency (SOCA)
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Next steps
This concludes the Anti-Money Laundering course presentation.
Assessment
Qualified and unqualified conveyancers in CQS member firms that have applied for Year
3 re-accreditation must also take an assessment on the subject of this course
presentation.
This assessment comprises 15 multiple choice questions.
To begin the assessment, close this window and return to the Course Activity screen in
the CPD Centre. From there, you can launch the assessment by clicking the link shown on
the right of that screen.
CPD Hours
Completion of this course and assessment qualifies for 2 CPD hours.
To finish the course and claim your CPD hours, you must first complete the assessment,
which can be launched from the Course Activity screen in the CPD Centre.
Close this window and return to the Course Activity screen.
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